Principles of Political Economy

by Arthur Latham Perry

The physical and moral obstacles, that Nature has interposed to the gratification of the multitudinous and constantly increasing desires of men, are so great in all directions, that the powers of the individual man are utterly unable to surmount any considerable number of them; while at the same time, the physical and moral powers, adapted under sufficient motives to overcome these obstacles, are very diverse in the different individuals of mankind. Not only is there a surprising diversity in original gifts, but also the powers acquired by gradual concentration of personal effort upon one set of obstacles become exceedingly diverse, as does moreover familiarity in the use of the gratuitous forces of nature which lend their aid towards overcoming these particular obstacles. As the result of one or two or all of these, one man naturally comes to have a vast advantage over others in his particular branch of business, whatever that may be; each of these others by precisely the same means comes to have a legitimate advantage over the first in his own branch of effort, whatever that may be; and if, as always happens practically, the first has desires which the varied efforts of the others can satisfy, and they too desires which his efforts can satisfy, nothing more is necessary to profitable exchanges between them than this diversity of relative advantage at different points.

It is solely because a given effort irksome in itself put forth for another person, in view of and for the sake of a return-service from him, realizes more of satisfaction to both parties than when put forth for one's self directly, that commercial exchanges ever take place among men. The sole ground of these, the principle underlying them everywhere, is Diversity of Advantage between different Men and between different Nations in different respects. All exchanges whatsoever depend on diversity of relative advantage in the production of commodities or services or credits as between the persons exchanging; and this diversity of relative advantage exists by God's appointment primarily among individual men as such, and only secondarily on the ground of the varied soil and climate and position and natural gifts of different parts of the earth. Reserving these secondary considerations, which are quite secondary in importance also, to a later detailed discussion, it is very clear and of central consequence in our science that a diversity of relative advantage in different things displays itself as between the individuals of every community and country large and small. There is no hamlet in any land in which one man has not an advantage over his neighbors in the making of clothes, another in the making and setting of horse-shoes, a third in the building of houses, a fourth in the curing of diseases, and another in the keeping a school; while each of those neighbors has undoubtedly some advantage or other over each of these in some trade or means of livelihood. As a natural result of this diversity any two of these villagers may profitably exchange their respective efforts with each other, provided of course each has a desire for the product of the other, to the manifest lessening of the effort of each relatively to the satisfaction of each, and the more so as the relative superiority of each to the other in his own trade is the greater.

This point will repay some pains in minute illustration. If the blacksmith can make and set horse-shoes only a trifle better than the tailor could do this if he tried, and the tailor can make coats only a little better than the blacksmith could make one if he chose, there will be but a slight benefit to each in their changing works with one another. For the sake of definiteness, let us say, that the tailor's capacity for making coats is 6, and his capacity in making and setting horse-shoes is 5; and also that the blacksmith's capacity for shoeing horses is 6, and his ability in making coats is 5. Each has a relative superiority to the other of 1 in his own trade; and if they exchange efforts, as they probably would under these circumstances, there is only an advantage of 2 to be divided between them.

Now let us suppose (what might easily become a fact), that the tailor by exclusive and augmented attention to the conditions of his own craft carries up his capacity for making coats to 15, the blacksmith's efficiency in both the trades remaining the same as before. There will now be an increased motive to both the artisans for exchanging products with one another, and a larger gain to each than before as the result of such exchange. The diversity of relative advantage as between the two has now gone up from 2 to 11. The tailor can now make a coat much better and quicker than before; and though the blacksmith owing to his inertness can neither make nor set horse-shoes any better than before, still less make coats any better, he will after all by still trading with the tailor reap a part of the benefit of the latter's increased efficiency in making coats; the new coat is at once better and costs less than the previous one; the tailor is still less inclined than before to leave his new and greater advantage over the blacksmith to set himself to shoeing his own horse; even on the old terms the blacksmith can do that 1 better than he himself can, and rather than forego the trade he will naturally offer the blacksmith somewhat better terms than before, or in other words will feel impelled to share with the blacksmith a part of the proceeds and rewards of his own now superior skill and diligence. The trade began on the sole basis of a relative diversity of advantage as between the two mechanics, each in his own craft; this relative diversity, without which no exchange ever takes place between any two persons, has now gone up as between these two from 2 units of advantage to 11 units of advantage; how will these 11 units be divided in this case? Nobody can tell exactly how they will be divided. Two things about it, however, are certain at least in their tendencies and potencies. The blacksmith is sure to get some part of the extra fruit of his neighbor's new push and spirit, while the tailor is sure to get as his own reward by much the larger part of the whole blessed 11.

We must by no means omit to notice the logical inference from this instance, nor fail to make the proper inductive generalization from a sufficient number of similar instances. It is this: no man can make any essential improvement in any of the methods of producing material commodities, without at the same time benefiting other people as well as himself. Under natural law, which is no respecter of persons, he can by no possibility selfishly take to himself the entire fruits of his own growing skill and vigor. The only way in which he can gather in at all the fruits of these is to sell their proceeds in the open market. To broaden his own market for now better and more abundant goods he must offer them to everybody on somewhat better terms than formerly—and the better the terms the broader the market—and he can well afford to do this, because the goods now cost him less of irksome human effort. Every improvement in the production of commodities is precisely of that complexion. The issue of every invention, of every improved process of every kind, is, so far forth, a cheaper product. And this public gain follows, must follow, individual enterprise at single points, even when the great mass of exchangers remain at the old stage of sluggishness. Whatever increases at one point even, and a fortiori at two points, the diversity of relative advantage as between any two exchangers, is of benefit to them both, and the greater this relative diversity becomes the greater the benefit to both.

Now let us see how the matter stands, when tailor and blacksmith at the same time feel and obey the impulses to a more skilled and vigorous artisan life. Suppose the blacksmith too carries up his efficiency in his own trade to 15, just as the tailor has done, the potency of each in the trick of the other remaining as before at 5; under these circumstances when the two come to trade with each other, each has a relative superiority over the other of 10, and there is an advantage of 20 points to be divided between the two; the trade is now ten times more profitable to each than it was at the outset, when there was only an aggregate of 2 units for the division between two parties; and accordingly the motive to an exchange and the gain of an exchange as between tailor and blacksmith are ten times greater than they were before. Therefore we lay down the principle, as inductively ascertained and as universally applicable to all exchanges, that the greater the relative superiority at different points as between the parties exchanging, the more beneficial and profitable do the exchanges become to all the participators in them. If this principle be just, and we may well flatter ourselves that it will be found to be just, it follows, that every man who has anything to buy or sell, is directly interested in the highest success of his fellow-exchangers, that every trade finds its own advantage in the success of all other trades, and that all discoveries and inventions by which Nature is made to pay tribute to art is, restrictions apart, so much clear gain to the world at large. In the light of sound and broad principles, what David Hume called the "Jealousy of Trade" is simply silly.

The mainspring that impels all buyers and sellers to quicken their movements and to improve their methods and thus and otherwise to cheapen their costs of production, is the natural press of competition. Somebody else is offering this product, or will offer it, for less than we are now selling it for, and we must contrive some way by shortened times or cheaper processes or a quicker zeal not to be beaten in this market-race, is the silent argument ever making itself felt on the mind and hand of the producer. Such natural action always increases the general diversity of relative advantage as among buyers and sellers.

But, on the other hand, whatever lessens or threatens to lessen this natural and most beneficial stress of competition among producers of similar commodities at home or abroad, necessarily lessens the motive on the part of these producers to excellence of quality in their goods and to cheapness of their cost, because it makes less the diversity of relative advantage as between these producers and those producers of other commodities against which the first exchange. The units of advantage that would otherwise be divided between the exchangers are diminished; the motives to trade and the rewards of trade are thus lessened to each pair of parties subject to such diminution of competition, and consequently to the community, or nation, or family of nations, as a whole; and accordingly this is the precise place for us to look into the nature and effects of Monopoly, so called, and to perceive once for all, that Monopoly is the enemy of mankind.

Monopoly is a word derived from two Greek words, which mean when combined selling alone, that is, the privilege of selling one's commodity free from the competition to which it is naturally subject by other sellers than the privileged one. Monopoly is thus artificial restraint imposed on some buyers and sellers for the supposed benefit of other buyers and sellers. It is wholly unnatural. It is usually enjoyed under the forms of law. Its beneficiaries commonly cajole or extort from Government by hook or by crook the exclusive privilege of selling certain commodities in a designated market. Their motive is purely selfish: it is simply and solely to get for themselves a return-service artificially enhanced by selling commodities in a legally restricted market. The effect in the first instance usually corresponds to their expectations. The public are at their mercy so far as the designated commodities are concerned.

The general story of monopolies is a dreary stretch of record of human greed and wrong on the one hand, and of wide-spread poverty and suffering and slowly-gathering resistance on the other. We will look at only two instances at present in the long account, premising that, the motives of greed and grab are the same in all instances, and the results of wrong and hate on the part of those oppressed by them are the same also in all instances. Let Macaulay (I, 40) tell us something of the first instance selected for illustration. "But at length the Queen took upon herself to grant patents of monopoly by scores. There was scarcely a family in the realm which did not feel itself aggrieved by the oppression and extortion which this abuse naturally caused. Iron, oil, vinegar, coal, saltpetre, lead, starch, yarn, skins, leather, glass, could be bought only at exorbitant prices. The House of Commons met in an angry mood. It was in vain that a courtly minority blamed the Speaker for suffering the acts of the Queen's Highness to be called in question. The language of the discontented party was high and menacing, and was echoed by the voice of the whole nation. The coach of the chief Minister of the Crown was surrounded by an indignant populace, who cursed the monopolies, and exclaimed that the prerogative should not be suffered to touch the old liberties of England. There seemed for a moment to be some danger that the long and glorious reign of Elisabeth would have a shameful and disastrous end. She, however, with admirable judgment and temper, declined the contest, put herself at the head of the reforming party, redressed the grievance, thanked the Commons in touching and dignified language for their tender care of the general weal, brought back to herself the hearts of the people, and left to her successors a memorable example of the way in which it behooves a ruler to deal with public movements which he has not the means of resisting."